Podcast: Waking up to net zero

Central banks should consider integrating net zero considerations into their monetary policy frameworks, according to BNP Paribas’ head of sustainability.

During CB On Air’s latest Partners in Focus episode, Jane Ambachtsheer discussed “realistic” ways in which central banks can help the financial sector transition towards net zero.

Ambachtsheer noted monetary policy was one way central banks could take action, either through incorporating net zero considerations into frameworks and operations directly, or setting specific net zero criteria for collateral, refinancing, and asset purchase programmes.

Reserve management and supervision were also areas central banks could make a difference, she said. In the area of reserve management, integrating net zero considerations into their portfolio was one option.

For prudential regulation, Ambachtsheer suggested central banks consider asking supervised firms to submit net zero transition plans as part of their regular reporting. In addition, ensuring climate-related disclosures include net zero goals would be important, she said.

In November, representatives from the public and private sectors gathered in the UK for the COP26 conference to address growing climate change concerns

During the conference, central banks, financial supervisors and regulators from around the world committed to integrate climate considerations into their decision-making processes. Further commitments were also made by individual institutions.

The European Central Bank said it will introduce climate disclosure requirements for its collateral framework and will incorporate climate change criteria into its corporate sector asset purchases by the end of 2022.

In a joint statement, the Reserve Bank of Australia and the Australian Prudential Regulation Authority committed to include climate-related risks in financial stability monitoring and micro-supervision.

The Bank of Canada pledged to assess the effects of climate change on the macroeconomy and price stability, and improve its climate-related risk management of the Canadian financial system.

It will also review its financial market operations to consider climate-related financial risks and opportunities, and work to green its own operations.

The Central Bank of Iceland made an “individual pledge to COP26“, and committed to include climate risk in its stress tests of the Icelandic financial system and financial market participants. The central bank also said it wants to achieve carbon neutrality in its own operations.

Additional climate commitments were also made by central banks in Costa Rica, Croatia, Greece, India, Ireland, Lithuania, Switzerland and the US.

Index:

00:00 Introduction

01:03 Defining net zero

02:32 Importance of net zero for central banks

05:19 Hurdles to overcome

07:52 Setting realistic targets

11:48 Should central banks be held accountable?

15:28 Momentum behind net zero is building

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